“Market Urbanism” refers to the synthesis of classical liberal economics and ethics (market), with an appreciation of the urban way of life and its benefits to society (urbanism). We advocate for the emergence of bottom up solutions to urban issues, as opposed to ones imposed from the top down.

Car Sharing as a Public Utility – What Could Possibly Go Wrong?

Over at Washington City Paper‘s Housing Complex blog, Lydia DePillis takes issue with DC’s car sharing policy – and namely, the decision to auction off on-street spaces to the highest (car-sharing) bidder, “rather than allow the market’s first mover—Zipcar—[to] have them all for free.” She writes:

The bigger question, it seems to me, is whether we need competition at all. The inaugural auction led to Zipcar losing 80 percent of its curbside parking spaces. That doesn’t dramatically impact the total number of spaces available to Zipcar users, since most of them are on private land. But it definitely lessens the utility of the service. Furthermore, I presume that the new players in the market will be going after private spaces as well, which will confine Zipcar’s ability to expand, and likely drive up the prices of those spaces.

The thing is, car-sharing isn’t like many other markets, where you’re free to choose between a bunch of options that have equal access to resources. There’s a finite number of spaces, so the convenience of belonging to any one service—and let’s face it, nobody wants to pay membership fees for more than one—decreases with the number of companies they’re split between.

Sure, it’s never a good idea to allow one company to have a complete monopoly. But governments have long coped with this problem by creating regulated monopolies, like power utilities, that are subject to price restrictions and have an obligation to provide equal access to services.

First I’d like to address the argument that “car-sharing isn’t like many other markets” because “there’s a finite number of spaces.” But isn’t this true of all real estate ventures? How does car sharing differ from, say, ATMs in this regard? Sure, it can sometimes be a pain when you’re in a strange neighborhood and can’t find your bank’s ATM, but I don’t think anyone would argue that we should regulate ATMs like public utilities, restricting prices and mandating that they put up machines in poor neighborhoods. Decades of off-street parking minimums have made potential car sharing spaces plentiful throughout the District, and if these spaces aren’t enough, the city should raise the price of on-street parking to market-clearing levels, do away with the time limits, and work out a procedure for billing car share companies for the use of these spaces. (Well, they should do that anyway, but that’s a topic for another day.) And what’s to prevent non-monopolies from having interconnection agreements, like ATMs (you can use other machines, but it’ll cost you) and Japanese railroads?

Secondly, turning car sharing into a regulated monopoly seems like a bad idea for a number of reasons. But chief among them: How is the District of Columbia supposed to have any clue how to set car sharing rates? The industry is in its infancy, and as far as I know, no government on the face of the planet has ever attempted to regulate car sharing rates, much less been successful at it.

Let’s not forget what happened the last time American municipal governments tried to regulate complex private transportation businesses as public utilities: They quite literally regulated the private streetcar and rapid transit businesses out of existence. The artificially low fares (five cents, at the time) and mandates that the companies continue to operate unprofitable lines are both things that Lydia wants to see applied to car sharing services. What’s to stop this from happening with car sharing, where there’s far less history for regulators to drawn upon for inspiration? How long until the city is using Zipcar’s government-granted monopoly as an excuse to demand that cars be manufactured in America, adhere to stricter emissions rules, etc., like American cities did with profit-sapping labor rules a hundred years ago?

This isn’t to say that all forms of price regulation are inevitably spectacular failures, but even in Japan, where yardstick competition is used to set prices on private train lines, the result is not obviously better than the market equilibrium alternative – Japanese trains are insufferably crowded during peak periods, something which the private rail companies could alleviate with higher peak fares, which could then be reinvested back into capacity upgrades. If the solution is lacking even with relatively efficient Japanese regulators, what hope is there that DC will get it right?

Share this:

About Stephen Smith

I graduated Spring 2010 from Georgetown undergrad, with an entirely unrelated and highly regrettable major that might have made a little more sense if I actually wanted to become an international trade lawyer, but which alas seems good for little else.